Tulip Mania

10 Key excerpts on "Tulip Mania"

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  What Global Economic Crisis?

  • P. Arestis, M. Baddeley, J. McCombie, P. Arestis, M. Baddeley, J. McCombie(Authors)
  • 2001(Publication Date)
  • Palgrave Macmillan

    (Publisher)

  As such, he denies that they were even rational bubbles in the sense of Blanchard and Watson (1982). Tulipmania Tulipmania was one of the very first speculative bubbles and is still regarded by many as the classic speculative bubble. Tulipmania occurred in Holland over three months at the end of 1636 and the beginning of 1637. The traditional view advanced and defended by, most notably, Kindleberger (1996), is that the explosive growth, and the subsequent even faster collapse, of the prices of tulip bulbs conform to a typical speculative bubble or mania, driven to a large extent by irrational forces with inevitable disastrous consequences (Kindleberger, 1996, Chapter 2). 228 What Global Economic Crisis? Garber (1989), on the other hand, has forcefully argued a revisionist viewpoint from a narve neoclassical rational expectations stance. Garber's (1990, p. 35) methodology is based on the heuristic that we should search intensively for market fundamental explanations before 'clutching the "bubble" last resort'. While Kindleberger accepts that for much of the time markets do work and allocate resources efficiently, from a careful study of the historical evidence, he finds compelling the argument that manias and panics do from time to time break out, with dire results. Tulipmania is one such instance. As Kindleberger (1996) puts it, 'the issue provides a classic test as to whether economic theory after an event can invalidate its interpretation by the participants and general historians'. His conclusion is that, at least in this case, it cannot. The importance of the debate is that if Tulipmania can be shown merely to have reflected changing fundamentals, then perhaps other speculative manias need to be reassessed. There is one major difference, though, that needs to be borne in mind, in that tulip bulbs, almost uniquely, were essentially a consumer good: the bulbs were bought ultimately for their final utility.

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  Economics for Financial Markets

  • Brian Kettell(Author)
  • 2001(Publication Date)
  • Butterworth-Heinemann

    (Publisher)

  The Dutch Tulip Mania was followed by a depression from which it took the country many years to recover. Garber (1989) points out that the standard version of tulipmania neglects discussion about what the market funda-mental price of bulbs should have been. To form an expectation about the price of tulip bulbs, Garber collected data on bulb price patterns for various highly valued tulip bulbs. He found that the extremely high prices reported for rare bulbs and their rapid decline, reflected normal pricing behaviour in bulb markets and cannot be interpreted as evidence of market irrationality. Garber points out that serious traders ignored the market and participants in the market had almost no wealth anyway. Garber concludes that tulip prices at the time could be explained by market fundamentals and that tulipmania does not qualify as being a bubble. It must be stressed that his findings have been hotly disputed. The South Sea Bubble A second instructive example of bubbles was the speculation in England at the beginning of the eighteenth century. A company, later known under the name ‘The South Sea Bubble’, started in 306 Economics for Financial Markets 1711 when the Earl of Oxford founded the South Sea Company, financed by a number of the merchants of that time. The company’s full name was ‘The Governor and Company of the Merchants of Great Britain to the South Seas and other parts of America for the encouragement of the Fishing’. The company acquired almost 10 million pounds of the British national debt, against a guaranteed annuity of 6 per cent, and the monopoly of all trading with Latin America. A short time after the company’s founding, rumours of incredible profits from the South Sea trading arose, where English goods could be bartered for gold and silver from the ‘inexhaustible’ mines of Peru and Mexico.

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  Temporary Economic Crises

  • Shahzavar Karimzadi(Author)
  • 2022(Publication Date)
  • Routledge

    (Publisher)

  The Tulip Mania (1636–37) was one element among many elements described above about the Dutch socio-economic and political structure in the seventeenth century. It was an integral component of increasing Dutch confidence in securing not just their political liberty but also economic liberty. The answer lies in their faith in their everlasting decentralized national government and uninterrupted political and economic stability. The source of the Tulip Mania was also to be found in greater individual political and economic freedom. It was because of the weakening of religion restrictions and progress in individual rights and rationalization of the rule of law and moral conduct that many individuals overstepped the prevailing medieval circumscriptions and carried to excess and overexerted whatever was new. The medieval rules, moral conduct, and customs overtime lost their domination. Land, labour, capital, entrepreneurism, science, and technology were emancipated from the grip of religion, medieval scholasticism, and feudal constraints. The concerns were gradually discharged from the canons of the archaic institutions and obsolete beliefs and rehabilitated as matters of individual concern. The medieval taxes and usury laws gave way to free wage labour, markets, and free trade. Another contributory factor in Dutch economic and political transformation in the seventeenth century was the role of emigrants. The emigrants out of necessity discarded the old habits, culture, and prohibitions and accepted a variety of different new jobs to make ends meet. Work and trade became their top priorities. Subsequently, the Dutch established the largest economy, the international network of maritime trade, the first and the largest stock exchange market, and the first joint-stock companies. To this, we must add their greater hopes and expectations about the future. That this situation will last forever or even will get better. The rush to buy tulips and sell it at a higher price in an organized market was something new. Any individual was capable and allowed to buy and sell. Traders could not only see the profit they could make in the marketplace but were attracted to further their socio-economic position. The thing that attracts the attention of the crowd is the soaring profit but not the unseen narcissistic nature of the act. The more profit one can make from such transactions the more one gets self-involved and egoistic. This propensity is one of human’s greatest follies. Tulip craze was one of these human follies. Other cardinal follies that the entire century was engulfed with, that in the metaphysics of economics are left unsaid, were long and bloody wars, colonialism, slave trade, displacement, and religious conflicts.

  Let us now turn to the story of Tulip Mania. The wild tulips grow in the Karatau Mountains in Kazakhstan. Somehow the flower found its way to Turkey and in the Ottoman rulers’ gardens. The empire was established in 1299. The rulers of the empire, in equal measure, were fond of Islam and tulips. Little wonder that they picked tulips out of the crowd of flowers as the symbol of god. It was said that God in Arabic script looks a lot like the shape of the flower. With that portrayal, the flower was granted a holy status. So, it was not a coincidence that the tulip acquired its divinity status and became the sole property of emperors. Turning it into a holy and imperial flower dislodged it from a common flower and detached it from the common masses. Its high status decimated its earthy qualities. With that being said, the tulip found its way to Holland at the end of the sixteenth century. In no time it also became a symbol of status and wealth in Holland. The demand for these rare exotic flowers grew quickly. The flower attracted people from all walks of life. The lure was not only because the tulip was exotic, exquisite, and holy but also because it made sellers good money. The news that anybody could make money by buying tulip bulbs and selling them immediately at a higher price was too tempting to resist. This was something new. Economic freedom for any individual to trade and make money was the dawn of a new era in economic development. The trend in Holland then was why not make the most of the new liberty in trade. The rush that ended in the stampede began in the summer 1636. Obviously, the real traders and the insiders were in a better position. These groups of people were relatively more informed, either through reading, experience, or because of their position. As for the imitators, they had none of those advantages. Worst of all the latter social groups were latecomers but far more intrigued and bewitched by the fever that infested the events than any other motive.

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  Tech Stock Valuation

  Investor Psychology and Economic Analysis

  • Mark Hirschey(Author)
  • 2003(Publication Date)
  • Academic Press

    (Publisher)

  While tulips are still more popular in Holland than elsewhere, tulip prices have never again approached levels seen during the height of the Tulip Mania of 1634–36. Today, serious horticulturists might buy rare “collections” of Emperor Tulips, Mid-Season Tulips, or Darwin Hybrid Tulips at prices from $0.30–0.40 each, or at levels similar to postmania tulip prices in Holland. 6 86 CHAPTER 4 A DISSERTATION ON TULIPS AND AMERICA ONLINE Table 4.1. This is consistent with a decline in the price of real goods over time and a generally rising standard of living. Importantly, there is ample reason to believe that the price estimated in Table 4.1 is a conservative estimate of the present-day equivalent price paid for a single bulb at the height of Holland’s Tulip Mania. 6 See Van Engelen, Inc., Wholesale Price List, 23 Tulip Drive, Bantam, CN 06750. PSYCHOLOGY OF MANIAS 87 IV. PSYCHOLOGY OF MANIAS Mackay, like other popular accounts of tulip bulb pricing in Holland during the 1634–36 period, refers to the word “mania” when describing that episode. It is well-worth noting that mania is a kind of insanity characterized by great excite-ment, extremes of joy or rage, and uncontrolled and often violent activity. 7 Sometimes referred to as a “bipolar disorder,” mania is a serious mental illness in which a person alternates between periods of severe depression and periods of intense joy. The illness is also called manic-depressive illness or manic depres-sion. Approximately 3 million people in the United States suffer from bipolar disorder. If treated inadequately, the illness can have tragic consequences, such as suicide. During periods of depression, a person suffering from bipolar disorder may feel sad, anxious, irritable, hopeless, or unmotivated. Depressed patients may experience insomnia or excessive sleeping, decreased or increased appetite, weight loss or weight gain, slowing of thought and movement, and poor memory and concentration.

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  The International Political Economy of Investment Bubbles

  • Paul Sheeran(Author)
  • 2017(Publication Date)
  • Taylor & Francis

    (Publisher)

  4 a dramatic piece that captures the fever surrounding the covetousness of rare flowers. This tale of financial corruption is based on the story of the execution of John and Cornelius De Witte, a true event, which occurred nearly 40 years after the episode of Tulip Mania. It is said that King William of Holland suggested to Dumas that he should use the fate of the de Wittes as the basis of a novel.

  The speculative phenomenon of Tulipomania, which occurred in the early seventeenth century, fits into the annals of classic political economy. On the one hand, it was a boom that emerged in an economy enjoying the influx of wealth that had been obtained from the strategic gains arising from international trade and exchange. It was also influenced by urbanisation and political conflicts in the form of the Dutch wars of independence, the Thirty Years War, which began in 1618. The bubble followed substantial political, social and religious change (the emergence of Calvinism in the sixteenth century, which promoted the idea of visible proof in this world of preselection of the next)5 cautioned against the deception in the speculative trade of Tulips. The warnings of the harm resulting from gambling were, however, tempered by the vast gains that could be made from trade in the flowers.

  The consequences of the Reformation, which was more than a change in the religious structure, led to the redistribution of power in trade and finance. In July 1572 the first 'free' assembly of the States of Holland was held in Dordrecht, which had recognized the Prince of Orange as its leader in the revolt. The Catholic Church lost ground in the region to Calvinism, hard work however overshadowing sobriety, and in 1579 following the capture of Amsterdam the Geuzen (Calvinist brigands), the Union of Utrecht was formed and an independent Dutch republic declared.6

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  Boombustology

  Spotting Financial Bubbles Before They Burst

  • Vikram Mansharamani(Author)
  • 2019(Publication Date)
  • Wiley

    (Publisher)

  27 further validates the view that silent leadership of seemingly informed individuals contributed to the development of a group consensus. (Given limited data from the time, there is no better gauge of seemingly informed status than fame, and these descriptions imply fame.)

  The Multilens Look

  The purpose of this chapter was not to be exhaustive in its treatment of Tulipomania or any facet of the period. Rather, it was to demonstrate the power of a multidisciplinary framework through which to analyze bubbles. A summary of the Tulipomania discussion is listed in Table 6.3 . The next chapter will similarly illustrate the power of the five-lens framework during the Great Depression.

  Table 6.3

  The Five-Lens Approach to Tulipomania

  Lens	Notes
  Microeconomics	Higher prices induced buyers. Lower prices induced sellers.
  Macroeconomics	Hot money inflows provided cheap capital. Financial innovation (leverage via futures contracts).
  Psychology	Political-economic inspired overconfidence. Conspicuous consumption / trophy bulbs. “New era” thinking (golden age).
  Politics	End of war. Government meddling in property rights, distorting price mechanism.
  Biology	Amateur investors. Silent leadership.

  Notes

   1 . Donald Rapp, Bubbles, Booms and Busts: The Rise and Fall of Financial Assets (New York: Copernicus Books, 2009).

   2 . John K. Galbraith, A Short History of Financial Euphoria (New York: Penguin Books, 1990).

   3 . Rapp, Bubbles, Booms and Busts.

   4 . Michael Dash, Tulipomania: The Story of the World's Most Coveted Flower

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  Innovations Lead to Economic Crises

  Explaining the Bubble Economy

  • Jon-Arild Johannessen(Author)
  • 2016(Publication Date)
  • Palgrave Macmillan

    (Publisher)

  The result of such a collective strategy is a huge price increase for the good in demand. There was rampant speculation on the stock exchanges in the various Dutch towns as the stock prices of tulip bulbs rose and fell in price (via Wind Trade). Large profits were made when the stock prices fell for tulip bulbs, and similarly when the stock prices rose. 37 Many people became unimaginably rich overnight, as if they had discovered their own personal gold mine—which they had, in a figurative sense. An assumption that Mackay makes, and which seems to be cor- rect, is that those who acted in the tulip market were under the delusion that it would last forever. Mackay further writes that it was imagined that poverty would disappear from the Netherlands, and that wealth would spread to all the social strata of the population. When such thinking prevails, why would anyone want to wear themselves out in ordinary jobs producing tangible goods and services? The nobility, city dwellers, craftsmen and tradesmen, sailors, servants and even chimney sweeps, yes, all kinds of people, seized the opportunity to partake in this newfound wealth. Anyone with any kind of assets, such as a house, land or a boat, could convert these through the new credit instruments of the banks into money, which could then be invested on the stock exchanges. Prices rose, time passed, and everyone earned good money for a period of time. Of course, the thinking goes, once you have made a bit of money, why not try 36 Mackay (1995: 93). 37 Mackay (1995: 94). 3 The Tulip Crisis of 1637 43 and make a little more? People elsewhere in Europe saw that people were accumulating wealth in this manner in the Netherlands; consequently, foreign capital flowed into the country to join in this dance around the golden calf. An interesting side note is that when the price of a luxury good, in this case tulip bulbs, rises, then other luxury goods, such as riding horses and fine carriages, also rise in price.

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  Timing the Market

  How to Profit in the Stock Market Using the Yield Curve, Technical Analysis, and Cultural Indicators

  • Deborah Weir(Author)
  • 2006(Publication Date)
  • Wiley

    (Publisher)

  As the market rose, widows sold their deceased husbands’ insurance policies to buy the bonds. When King Henry II defaulted on his bonds in 1557, how- ever, expectations crashed. He suspended payment on all bonds, and their prices fell 85 percent. Lyons lost its position as a financial center and Antwerp fell to the Spanish a few years later. The Antwerp bourse closed and its financial community fled to Amsterdam. They took with them many of the tools of modern finance: double-entry bookkeeping, bills of exchange, and stock markets. Once there, they developed derivatives: options and futures on stocks. Soon afterward, they invented margin loans and small stocks for small investors. They had all the tools they needed for the most spectacular market boom and crash in history: the Tulip Mania. 296 CAPITALISM AT WORK THE MOST FAMOUS MANIA: TULIPS Tulips came to Holland gradually during the late sixteenth century. The flamboyant varieties of these flowers became popular as the economy im- proved and morals relaxed. The austere ethics of Calvinism gave way to consumerism as the Dutch learned to enjoy their new prosperity. Tulips came to the right country; there was not much land in Holland and every bloom had to be showy enough to justify its space in a small garden. Tulips were easy to grow, and some of them had exotic shapes with variegated shots of vibrant color. Horticulturists later learned that it took a virus to turn a bland bulb into an exotic one and that the variation failed to pass the necessary gene for color to the next generation. This un- certainty added to their allure. Tulip bulbs were like small companies with no guarantee of the future of their production. As the Dutch economy im- proved and conspicuous consumption replaced austerity, tulips became a status symbol of the rich. Artists loved to paint this colorful symbol of power and wealth, and books of tulip drawings are still popular today.

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  Boom Bust

  • Fred Harrison(Author)
  • 0(Publication Date)
  • Shepherd Walwyn Publishers

    (Publisher)

  History is replete with such episodes, but they are different in one crucial respect from the booms and busts that we analysed in Part I: the timings of the events are not predictable. They are random, occurrences driven by the frailties of individual psychology and the passions of collective mania. They lack the institutional buttresses that transform private behaviour into predictable cycles.

  The mass hysteria that was beyond the grasp of Isaac Newton gripped the Netherlands in 1636. People went crazy over tulips. Prices of the several varieties were driven sky-high. The bizarre quest for fortunes attracted gullible people to Amsterdam. The money-men smelt the prospect of easy pickings. As brokers, credit-creators, dealers in futures, they evolved some of the crafty arts of modern financial markets. People offered houses and land for sale ‘at ruinously low prices’ to raise cash to invest in tulips. Foreign investors poured money into the Netherlands. This raised the prices of houses, land and the necessities of life. One man offered 12 acres of building land for a rare specimen, such was the delirious effect that the bloom had on formerly rational people. Prices peaked in November 1636. Slowly, they faltered, lurched into the doldrums – the market went ‘soft’ – and then crashed. The accumulated savings of thrifty people were wiped out. The leading economy in Europe was pushed to the verge of bankruptcy.2

  Looking back, we can patronisingly view the tulip saga with humour. It was an event that would not be repeated. Not, that is, for tulips. No one would fall for such a pathetic dream again, would they? Since then, people have been wiser. And so, to lure them into new bouts of mania, it was necessary to beguile them with more sophisticated narratives if they were to be parted from their money. Conmen and governments were sufficiently ingenious to provide the story lines that did, indeed, drive people into destitution. While later episodes were also random events – not orchestrated by an internal financial logic – they provide insights that make sense of recent financial crises. Above all, they remind us that governments are an inseparable part of the process. They legitimise the mania by laying down (if only by default) the culture that is an essential part of the gambling ethos that separates sane people from their money. The events of 1720 are classics from which major lessons can be learnt. It was the year that witnessed the first global financial crisis.

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  Stock Market Efficiency, Insider Dealing and Market Abuse

  • Paul Barnes(Author)
  • 2016(Publication Date)
  • Gower

    (Publisher)

  The story of tulipmania begins in 1559 when Conrad Guestner brought the first tulip bulbs from Constantinople to Holland and Germany, and people fell in love with them. Soon tulip bulbs became a status symbol for the wealthy, because they were beautiful and hard to get. Although early buyers were people who truly prized the lovely flowers, later buyers primarily considered them an investment. Soon speculators became involved and they began to be traded on the local market exchanges. By 1634, the craze of owning tulips had spread to the Dutch middle classes and merchants and shopkeepers vied with one another for single tulip bulbs. At the height of Tulip Mania in 1635, a single tulip bulb was worth almost £20 000 in today’s prices and they were traded on the Amsterdam Stock Exchange and other exchanges in Holland and elsewhere in Europe. Trade grew so rapidly that tulip notaries and clerks were appointed to record transactions, and public laws and regulations were developed to control the tulip craze.

  However, in 1636, some people began to sell their tulip holdings. The price of tulip bulbs began to weaken, slowly at first, and then rapidly. Confidence was soon destroyed, and panic seized the market. Within six weeks, prices had fallen by 90 per cent. Defaults on contracts and liens on owners were widespread. At first the Dutch government refused to interfere. It simply advised owners of tulip bulbs to agree among themselves on some plan to stabilize prices and restore public confidence. These plans failed and it was forced to act. All contracts prior to November 1636 were declared null and void. Contracts made after that date were settled if buyers merely paid 10 per cent of the prices to which they had earlier agreed. Prices continued to fall. The provincial council in The Hague was then asked to invent some measure to stabilize the price of tulip bulbs and public credit. Those efforts failed. Tulip prices fell even lower. In Amsterdam, judges unanimously refused to uphold tulip contracts and treated them as gambling activities. No court in Holland could, or would, enforce payment. The price of tulip bulbs eventually fell to, in real terms, less than their price today.

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